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Rent vs. buy

17 July 2005

Q. I am considering whether to buy a building for my new retail business or to rent a space. Which do you recommend?

I strongly recommend that you rent with a short-term lease that includes an option to renew. Being new into business, you need to keep the risk down and save your funds for more important expenses that will probably arise during your startup period. It will probably take 20% down to buy a building and then you are committed for a finite period of time. I would much rather see you rent and use funds to sustain your business for the first couple of years.

When renting, try to determine the predominant way your customers are going to find your business. Location can be a very important factor for a couple of reasons. If your business is to be a "destination" shop, that is, customers already have a very good reason to come to your retail operation, then location is not so important. However, if you want to attract spillover customers from big retailers like grocery stores, location is critical. Also, if you expect your signage or location to be important in attracting prospective customers, your location is critical.

When leasing, make sure you understand any additional expenses that will be charged to you. Some of these may be a prorated common area maintenance (CAM) cost or a share of property tax. Also, in many rental locations in the malls, you will be paying a percentage of your sales to the mall.

Q- I do not have any real computer skills because it has been such a long time since I went to school. What do I really need to know to successfully run my new business?

You need a lot more computer skills before you open your business. I encourage you to take a basic course just to learn how computers work and how to send emails. I would also have a computer installed at your home so you can practice with email and with using the web to search for all kinds of information.

Two other important computer programs you need to master are MS Word (a word processing program for writing reports, letters, etc.) and Excel (a computer spreadsheet program that will do a myriad of computations for you). It is really a neat program and one that I find indispensable for me and for most of the entrepreneurs we assist through the Jim Moran Institute. For these two programs, I recommend that you take advanced courses and practice using both of them.

Mastering certain computer software programs will really help you when you set up your business.

Have a great entrepreneurial day.